The recovery may be a disappointing slow slog, but pernicious inflationary pressure is thankfully at bay.
The state of the job market has inspired worry for some investors, who see the possibility that the five-year economic recovery may be going off the rails. After all, the most recent U.S. jobs report showed that the economy generated 142,000 jobs in August, the smallest gain of the year and well shy of the 226,000 monthly average in the previous seven months.
Still, many advisors took it all in stride, saying the lower-than-expected jobs number reflected the general slow-and-steady slog out of the Great Recession. Some even see a silver lining in the slow U.S. recovery, saying no signs of inflation mean the Federal Reserve won’t have to raise rates too quickly and run the risk of making slow growth around the world even slower.
Tyler Mordy, president and co-chief investment strategist of Toronto-based Hahn Investment Stewards
It’s very simple; we’re stuck in this slow-growth era. So we have slow growth: It’s not too hot and not too cold. That means about 2 percent real GDP growth; jobs numbers that are about 200,000 per month, which is OK but not great. And that’s very much in line with Larry Summers’ “secular stagnation” theory, which I subscribe to as well.
The takeaway for investors is that this keeps central bankers’ feet to the monetary pedal. We have not reached escape velocity in terms of the economy being able to stand on its own two feet without help from the intervention of governments.
Tactically, we would say that Treasurys are a sell—the long bond has gone up in stair-step fashion since the start of the year—but we don’t think they’ve escaped the range-bound pattern we’ve seen over the last four to five years. And we don’t think interest rates are about to embark on some secular increase.
So again, this is a continuation of this slow-growth era that we seem to be stuck in.
John Forlines III, chairman and chief investment officer of Long Island, N.Y.-based JAForlines Global
This latest report is very similar to what I’ve been talking about recently in terms of the weak overall global economy. The U.S. is no different—it’s better than everybody else, but that doesn’t make it strong. And what’s most disappointing is that where the weakness is, is hard to pinpoint.
If you look back to April, which was a really strong report, it was all about construction—it wasn’t about basic jobs going into the overall economy and about employers really hiring, because they’re not. And that’s where we are. The U.S. Fed has been incredibly careful because the rest of the world is weak.
The U.S. is still recovering, and it’s not at a point where you could dramatically be a hawk over rates. Hopefully, we’ll see some sense coming to some of the more hawkish people on the Federal Reserve Board in the next month or so.